Page 6 - Budget 2021

The current tax rates and annual exemption mean that if you can arrange for your investment returns to be delivered
in the form of capital gains rather than income, you will often pay no tax on your profits. While investment decisions
should never be made on tax considerations alone, once the £2,000 level of the dividend allowance is exhausted,
favouring capital gains over income when setting your investment goals can be a sensible approach.

PLANNING POINT

If you do not use your £12,300 annual exemption by Thursday 1 April 2021 (ie before Easter arrives), you will
lose it and a possible tax saving of over £3,400. If you have gains of over the exempt amount to realise, it could
be worth deferring the excess until 6 April or later to gain another annual exemption and defer the CGT bill until
31 January 2023. However, remember that CGT on residential property gains (eg. buy-to-let) is payable within
30 days of sale.

Individual Savings Accounts (ISAs)

The annual ISA investment limit for 2021/22 will remain at £20,000. There will be no change in the £4,000 limit for the
Lifetime ISA (LISA), which was launched in April 2017 to encourage savings by the under-40s. The limit for the Junior
ISA (JISA) was also unaltered, but it was more than doubled to £9,000 last year, as was the Child Trust Fund (CTF) limit.

ISAs have long been one of the simplest ways to save tax, with nothing to report or claim on your tax return. The
arrival of the LISA complicated matters, as it sits somewhere between the traditional ISA and a pension plan. If you are
thinking of a LISA instead of either of these, you would be well advised to seek advice before taking any action.

Over time substantial sums can build up in ISAs: if you had maximised your ISA investment since they first became
available in April 1999, you would by now have placed over £240,000 largely out of reach of UK taxes.

PLANNING POINT

The first Child Trust Fund accounts matured in September 2020 as their owners reached 18. The tax benefits
continue after maturity as a ‘protected account’ until instructions to deal with the monies are provided. One
option is to transfer to an ISA.

Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EISs)

VCTs and EISs have been subject to many rule changes in recent years, with some significant reforms being introduced
in the Finance Act 2018. Those reforms have changed the nature of schemes by raising the element of risk. For
example, they included:

• A “risk to capital” requirement this focused the investment made by VCTs, EISs and seed enterprise investment
schemes (SEISs) on companies where there is a real risk to the capital being invested and excludes from
investment those companies and arrangements intended to provide “capital preservation”.

• Increased limits for investments in knowledge-intensive companies the amount an individual may invest under the
EIS in a tax year was doubled to £2 million from 6 April 2018, provided any amount over £1 million is invested in
one or more knowledge-intensive companies. Similarly, the annual investment limit for knowledge-intensive

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